Darden earnings slump amid continued Red Lobster, Olive Garden slide

Darden Restaurants Inc., the largest full-service restaurant company in the world, suffered a 19.6% plunge in profit as its two largest brands – Red Lobster and Olive Garden – continued to struggle with depressed sales and foot traffic.

During the third quarter ended Feb. 23, net income at the Orlando, Fla., company tanked to 82 cents a share, or $109.7 million, from $1.02 a share, or $134.4 million a year earlier.

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The restaurant giant – which owns eatery names including LongHorn Steakhouse, Capital Grille and the recently acquired Irvine chain Yardhouse – said earnings per share took a 13-cent hit due to the effects of severe winter weather and the company's implementation of a revamp plan announced in December.

Darden operates more than 2,100 restaurants. Olive Garden, with $929 million in sales in the third quarter, is by far its largest sales driver.

But the Italian-inspired chain is also one of Darden's weak links at the moment. The brand, which rolled out a new menu last month and is planning a spate of unit remodels, watched same store sales slide 5.4% during the quarter.

Foot traffic into Olive Garden restaurants open at least a year dove 4.9% in February.

Red Lobster, however, is the most significant laggard. Darden said late last year that it plans to split 705 Red Lobster units from its system, whether by selling it or spinning it off to shareholders.

The seafood-centric eatery brought in $611 million in revenue in the third quarter but saw same store sales dive 8.8% and visits decline 11.9%.

Same store sales at Red Lobster and Olive Garden would have declined regardless of cold temperatures or the calendar effects of a later Thanksgiving holiday last year, according to Darden.

LongHorn was the only Darden brand to enjoy an increase in same store sales, rising 0.3% on $363 million in revenue.

Activist investor Starboard Value has called for a special meeting, asking that shareholders be allowed to vote to block the Red Lobster divestment plan. Starboard owns roughly 5.5% of Darden shares.

In an open letter last month, Starboard linked the Red Lobster move with "potential destruction of shareholder value" and said Darden's stock performance "has been abysmal over almost any time period."

"Most notably, the Company has underperformed its closest direct competitors by a shocking 300% over the past five years," wrote Starboard managing member Jeffrey C. Smith.

But in morning trading in New York on Friday, Darden stock was up 3%, or $1.49, to $50.79 a share.

Darden said earlier this month that it had canceled its annual meeting for analysts set for March 28, opting instead for individual meetings. On Friday, the company reiterated its outlook for a 15% to 20% decline in earnings per share in 2014.